Moody's yesterday reacted to this scenario by downgrading its credit rating on Dubai Holding from level A2 to A3 and placed it on review for further downgrade. Similarly, Emaar has been put on review for possible downgrade from the current Baa1.

Although Moody's acknowledges that Dubai property market have almost bottomed out, the financial implications of its decline have taken its toll on both companies 'debt protection metrics', said Phillip Lotter, Senior Vice President at Moody's and Lead Analyst for Dubai Holding.

In Moody's opinion, these will continue to weaken further, before the effects of market recovery translates into stronger cash flows, irrespective of the announced merger.

One of the concerns is that analysts have a divided opinion on its impact on Emaar. Moody's has expressed concern that Dubai government has accepted diluting Emaar with a weaker business in support of wider market consolidation.

Fitch Ratings has announced that it would monitor Dubai Holding and Emaar ratings for action, as further details emerge. Standard and Poors has adjusted their CreditWatch rating on Emaar to developing from the previous negative.

According to a statement by Standard and Poors, the rating action reflects the possible benefits on Emaar's credit profile from a merger with the real estate business of Dubai Holding Group. The developing implications reflect the downward pressure on the ratings from the weak Dubai real estate markets when the merger is incomplete, S&P said.